August 30, 2025 Market Update

Mr. Market spent much of last week trying to make sense of mixed economic signals.  Stocks began on a positive note but wavered as new data on jobs and consumer spending left investors uncertain about the strength of the recovery.  The sentiment took a further hit on Friday as the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation measure, showed prices firming higher above the 2% target.  Major equity indexes, as a result, declined to close the week with modest losses.

In the bond market, yields fluctuated as traders adjusted their expectations about when the Fed might begin cutting rates.  Short-term yields slipped on growing expectations of a fall rate cut, while longer-term yields moved less, suggesting that investors remain cautious about the nation’s growth outlook.  Credit markets were steady, showing little sign of stress.

Taken together, the week’s moves showed a market still trying to balance hope for lower rates with the reality that the economy continues to send mixed signals.  For now, Mr. Market seems cautiously optimistic, but still very much focused on the data to come.

For much of August, Mr. Market grew increasingly confident that the Federal Reserve was on the verge of lowering interest rates.  That optimism gained fresh momentum when Fed Chair Jerome Powell delivered remarks at the Jackson Hole symposium that were more dovish than investors had anticipated.

“With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell said.  “Inflation had moved much closer to our objective, and the labor market had cooled from its formerly overheated state.  Upside risks to inflation had diminished.”  His comments were widely viewed as opening the door to a rate cut.

The Fed is slated to announce its next decision on interest rates on September 17.  Futures markets now put the odds of a quarter-point reduction from the current 4.25%–4.50% target range at approximately 87%.  Importantly, the depth and pace of any cuts over the coming months remain uncertain, with investors watching closely for signals in the data.

While rate cut expectations have shifted, it is worth remembering that the Fed has maintained a data-driven approach throughout the post-pandemic period.  Past attempts to anticipate a pivot too quickly have often left markets disappointed, and several important economic reports are still due before the September meeting. 

That’s all for now.  Have a great weekend and invest wisely my friends.